What Makes a Startup Succeed? Identifying Scaling Success Factors

A lot of academic and scaleup institute research has been done on factors leading to the production of scaleups, but this research is rarely global and has often mixed traditional small or young firms with tech startups, which are a different species and should be examined in their own right. Further, existing research is often based on interviews of scaleup executives, asking what they are focused on currently to try to infer what similar companies should be doing. This is a clunky and misleading effort at best because a one-year-old startup should focus on different issues than, for instance, a successful and large seven-year-old scaleup. Grouping all young companies together is a fundamentally flawed approach.

In this report, we present the world’s first longitudinal research into scaleup success factors, building on the central question of what behaviors, resources, and characteristics of startups differentiate those that within four to eight years scaled to $50 million and higher valuations from those startups that didn’t. For the purpose of this analysis we looked at startups that were less than four years old at the time of their leaders taking the survey (from 2015 to 2019).

The power of this research comes from its size — the number of startups surveyed — combined with its breadth — more than 80 cities across more than 40 countries across all continents except Antarctica are represented — as well as and the depth of factors examined (more than 60 metrics). 10,500 startups shared their URL along with performance factors such as sales data, number of paying customers, number of users, etc. Therefore, we could link their URL with global databases in our ecosystem data engine (including data from Crunchbase, Dealroom and PitchBook, and regional databases) and identify which ones scaled to a valuation of $50 million, $100 million, or more. Among them, 18 had reached unicorn status (a private startup with a valuation of $1 billion or more).

To fully understand the analysis, we will first introduce and assess important ecosystem factors, such as Ecosystem Lifecycle Phases. These concepts will later be used to break down the results within each startup and ecosystem Success Factors.

Geography

Geography is an important factor in scaling success. The United States led the emergence of startup ecosystems in Silicon Valley and Boston, and ecosystem development then spread all over the U.S. and in many majority English-speaking countries including the U.K., Canada, and Australia before spreading internationally. Israel and Singapore have developed their own tech startup ecosystems and become startup policy leaders. The ecosystems in these countries are relatively larger and more mature in terms of ecosystem Lifecycle Phase, and their scaleup rate is therefore higher.

However, as with all things involving startups, these scaleup rates stand to change over time as innovation spreads throughout the world. For example, while five of the world’s top 10 global ecosystems are from North America, several Asian ecosystems have emerged over the past few years, producing dozens of globally-competitive unicorns.

Geographical proximity to market is another factor of success, which is discussed in more detail later in this article. For a more detailed analysis of the geography of scaleups, see the following article, Global Scaleup Mapping, which is informed by insights from Dealroom.

The Importance of Networks

Starting in 2012 with the world’s first Global Startup Ecosystem Report, Startup Genome has demonstrated that Ecosystem Success Factors (factors outside of the control of a startup’s founder, e.g., access to funding) have a bigger impact on startup success than Startup Success Factors (those under the control of a startup’s founder). Networks are a vital component.

Local Connectedness 

Local Connectedness captures all metrics relating to the size, density, and quality of local networks. In our 2018 global research across 32 ecosystems and 20 countries, we presented a primary research instrument to quantify an ecosystem’s Local Connectedness validated against both startup and ecosystem Success Factors. It is broken down into Success Sub-Factors, mainly Sense of Community (founders, investors, and experts informally helping founders) and Local Relationships (between founders and with investors and experts), but also local founder collisions and density.

Broken down into three tiers (one third of respondents each), early-stage startups with the higher Local Connectedness Index see their revenue grow twice as fast as those with the lower Local Connectedness Index.

Startup Genome research has demonstrated that an increase in one point on the Local Connectedness Index (out of a maximum index of 10) explains an increase of 15.7% in Ecosystem Value. That is, an ecosystem with a value of $10 billion could gain $1.5 billion in Ecosystem Value by working to increase the Local Connectedness of its startup community by one point.

Consistent with prior Startup Genome research, we see that startups with a Local Connectedness Index score of 6 or above achieve a scaleup success rate of 5.1% compared to 3.8% for those with a score of 2 to 3.9, a 34% boost.

Not surprisingly, when looking at sub-components of the Local Connectedness Index, we see that the scaleup rate increases with the number of quality founder-to-founder relationships and the number of informal quality founder-to-investor relationships.

Global Connectedness

Startup Genome first created the concept of Global Connectedness in 2017, defining it as the degree of international connections between ecosystem stakeholders. The origin of the theory came from the practical observation that startups based in Silicon Valley and other globally connected ecosystems seemed to have a greater ease in creating globally leading innovation, accessing global markets, and seizing global category leadership, at least in part due to their global connections. These connections provide founders with access to global knowledge and personal connections that can support them in going global.

Through global primary research with a first set of close to 10,000 startups, we quantified the number of quality connections between international founders with a greater focus on connections to top ecosystems that are nexus of global startup knowledge, primarily Silicon Valley, New York City, and London, which are global markets of innovation, and secondarily Singapore, Berlin, Tel Aviv, and Shanghai. We found that:

• Ecosystems that are more connected to top ecosystems see their startups go global at a much higher rate on average (66% correlations between those very distinct variables).
• Early-stage startups that go global (more than 50% of foreign customers) are on a revenue growth curve that is 2x faster than those that do not (less than 50% of foreign customers).

 Connectedness may also be measured by the number of connections among investors (international investments and secondary offices of VC firms), attraction and leakage of startups, entrepreneurs, and talent, and the rate of secondary locations opened by scaleups and large tech companies.

In simple terms, higher Global Connectedness provides a startup with scaleup potential — the potential to knowingly develop a globally leading business model — whether inherited by being based in a top ecosystem or developed by a single founder through networking. If a startup puts this potential to work by going global at an early stage, it can — on average — achieve greater success and scale faster, and possibly seize global category leadership.

This new research confirms and strengthens earlier findings: the scaleup success rate clearly increases with Global Connectedness, and startups that develop a high level of Global Connectedness have a 3.25x higher chance of scaling up than those with a low level.

The Global Connectedness Index is based on a Z-score of the number of founder-to-founder international connections to top ecosystems where 5 is a Z-score of 4 and 6 are respectively 1 standard deviation below and above the mean.

The impact of global founder connections is even clearer when broken down by Ecosystem Lifecycle Phase. This is because the value of global connections for startups belonging to one specific phase is similar (i.e. similar for startups in Silicon Valley, New York City, or London), grouping by phase better isolates the impact of greater global connections.

Global Market Reach

Global Market Reach is defined by the strategic intent, action, and result of an early-stage startup to access customers outside of its country. In the following sections we will focus on how scaleup rates are impacted by these factors, particularly for reaching customers outside a startup’s local market as measured by:  

• Proportion of foreign customers: percentage of a startup’s customers based outside its country.
• Proportion of out-of-continent customers (to remove the impact of startups one’s national market size on Global Market Reach, i.e. startups in small countries focus on global customers almost by obligation).

Consistent with Steve Blank and Eric Reis’ Customer Development methodology, in order for a startup to develop a product with global potential it must start by talking to customers representative of global markets to identify an important unmet need, identify an attractive target market, then develop a product that fits the (global) customer need (product–market fit).

Proportion of Foreign Customers

Scaleup rates increase as startups sell to more foreign customers. When startups target customers beyond their borders from an early stage, they start to develop their products and services for global markets, as opposed to specifically for their national market. This expands their potential customer base, multiplies their growth potential, and as they gain traction, increases their ability to raise growth capital.

The U.S. and Canada have been removed from this analysis, though the findings may apply to these nations too. The U.S. was removed because of its very large market and the fact that as Silicon Valley and New York City are global markets of innovation, startups do not have the same need to go global to develop a product that fits global needs, nor to reach global markets to achieve a globally leading scale. Global customers of innovation (along with potential startup competitors, substitutes, and partners) come to Silicon Valley and New York City, bringing knowledge of global market needs and competitive landscapes directly to their local startups. Canada was removed to exclude any potential bias of the analysis based on the hypothesis that its markets are very close to U.S. markets both in terms of customer needs and geographic location.

We divided countries into three population size categories: 0–17.9 million, 18–85 million, and above 85 million. Examples of small countries include Sweden, Singapore, and New Zealand. Medium ones include the U.K., Germany, and Canada, and large ones include India, Brazil, and the Philippines.

Scaleups from small countries are more likely to sell to customers outside their country. This is partly out of necessity as their domestic market is too small to achieve adequate scale, and also in part because if they focus their products or services to fit only their local market, they will also fail to gain a foothold abroad, so they need to orient themselves to the global customer.

In small countries it is clearly advantageous to go global early, and dedicating more effort toward global markets than local markets pays off.

In medium-sized countries putting as much effort toward local as global markets achieves similar results as putting more effort toward foreign markets, but putting more effort toward the local market clearly has a negative impact on scaling. This is a very important finding because we often hear startups (and investors and mentors who advise them) say that it is considered better to first focus on local markets before targeting foreign ones. These findings dispel this generalized theory.

Startups based in large countries (U.S. excluded) scale at a higher rate when they focus on their domestic market. In those countries, the size of the domestic markets is so large that it may be worth delaying or foregoing global markets. This is certainly clear in India, where B2C startups can achieve unicorn status and billion-dollar exits without going out of the country. However, as we will see later, this may be due to those other large countries being on average made of earlier-phase ecosystems, Asian countries, and ecosystems with low Global Connectedness. It also does not seem to be true for B2B startups in general.

Global Market Reach: Customers Outside of the Continent

Startups with 50% or more of their customers coming from outside of their continent have the highest scaleup rate. This can be attributed mostly to startups that tailor their products and services to truly global markets — not just beyond their country, but beyond their continent — dramatically increasing their potential customer base. It is also indicative of a startup being savvy in dealing with dramatically different business environments.

However, it should also be noted that even when U.S. startups are excluded, the distribution of scaleup rates indicates that there may be some limit to how effective this strategy can be if taken to extremes. If a startup is based in one ecosystem and has to go to other continents to do nearly all its business, the constraints on that startup’s efficiency start to increase. This is likely why scaleup rates decrease for startups that focus 100% of their business on customers outside of their continent.

Asia’s scaling rates are relatively low for startups that focus on markets outside of their continent. This could be partly explained by the fact that the Asian continent is large, and language and cultural barriers as well as fundamental differences in market needs makes it challenging for Asian startups to develop products that fit Western markets. Being well aware of that challenge, the vast majority of Asian founders focus on selling in Asia.

In Oceania, due to its relatively small size and the fact that the culture and markets are closer to the American and European market than to Asia-Pacific (defined as their local continent in our survey), scaleups are more likely to occur for startups that reach to global markets.

It is important to note that a scaleup focusing almost exclusively on other continents — indicated by having 80% or more of out of continent customers — is not considered a normal “go global” strategy except for Israel, Australia, and New Zealand, which have more affinity with markets outside of their own continent. Otherwise, startups should generally focus on the needs of customers they can easily meet and talk to, and that normally includes a large portion of customers in their own continent. However, even in the U.S., a nation with a large domestic market, reaching out to foreign markets in some capacity leads to an increase in success at becoming a scaleup.

For Canadian startups, a key question has until now been whether focusing on selling into the very large U.S. market was preferable to expanding sales and marketing efforts across the world. Based on earlier research and the understanding that in order to develop a globally leading product, a startup must start developing global customers early, we had encouraged Canadian startups to truly go global rather than focus on the U.S. market. As captured by the following chart, this research leaves no doubt that Canadian startups that sell to a combination of customers in the U.S. and outside of North America achieve much a higher scaleup rate.

Global Market First: Without the U.S.

The Global Market First metric measures if a startup is targeting a global market from day one. It is a proxy both for a startup’s ability to scale in the future (due to targeting a larger market) as well as its founders’ capabilities, because this indicates the founders may have global connections (and experience) and can develop products and services that fit different contexts beyond their local market. Similar to above, we have removed U.S. startups because of the large amount of U.S. scaleups and the fact that they are more skewed towards favoring their domestic market. For non-U.S. startups that target the global market first, the scaleup rate doubles.

When assessing this strategy by Ecosystem Lifecycle Phase, we see that targeting global markets first is much more effective for startups based in later-phase startup ecosystems. Startups in Attraction- and Integration-phase ecosystems that target global market first scale at nearly 9%, compared to less than 5% for those that don’t.

This is very important to understand for governments, innovation agencies, and ecosystem builders. Consistent with Steve Blank and Eric Reis’ Customer Development methodology, it is much easier to develop a product to global customer needs when your startup ecosystem is large and globally connected and has a track record of producing billion-dollar exits (the Startup Genome “trigger” indicating a startup ecosystem has reached the Attraction Phase), or if the ecosystem is a global market for innovation (e.g., Silicon Valley, New York City, and London, which are all in the Integration Phase, meaning globally integrated).

Conversely, startups in Activation-phase ecosystems that do not target global markets first scale at a slightly higher rate (2% vs. less than 1%). This makes sense because startups in these early-phase ecosystems face great challenges in developing and marketing products to global market needs, such as the lack of connection with and therefore access to knowledge of global markets of innovation and executives and employees with global growth experience.

Consistent with the foreign customer and out of continent customer analysis, we see that going global is generally beneficial except for startups in Asia. We removed Latin America, the Middle East, Africa, and Oceania for lack of statistical significance because too few startups in these regions reported targeting global markets first.

Breaking it down by target customer segment, we see surprising results. Based on experience we might infer that it is beneficial for B2B startups outside the U.S. to target the U.S. market rapidly because the U.S. is the only B2B market that is well developed. In the U.S. traditional corporations have not only witnessed the success of startups for decades, but have also been disrupted or even seen their peers get killed by successful startups. This is rarely the case elsewhere.

Differently, B2C and mixed startups (e.g. marketplace and two-sided markets) must start with customers they can see and talk to, so targeting global markets first is about as good as not doing so. This is again consistent with Steve Blank’s and Eric Reis’ methodologies.

B2B-only startups that target the global market from day one have higher scaleup rates (6.8%) than B2B startups that do not target global markets first (2.8%). Previous Startup Genome research shows that non-U.S. B2B startups that are globally focused (>50% customers outside the local country) see their revenue grow 2x as much. The products and services of B2B startups that focus too much on their local customers will not be acclimated to global business needs.

Team

The team behind a startup is vital to its success or failure, and this includes the experience of the team members, their physical location, and their compensation model. We have intentionally chosen not to examine scaleup rates by gender, ethnicity, and other diversity measures. Academic research has shown that diversity has a positive impact on business teams, yet some groups are disadvantaged in their efforts to scale due to external factors that they have little or no control over (for instance, non-diverse networks around VC from partners and selection bias).

Talent

Head of Growth with Prior Global Experience (All Without U.S. and U.K.)

This metric measures if a startup has hired a top growth leader who had business experience in U.S. or U.K. markets prior to hiring — markets that are considered global markets for innovation. Because of the nature of the question, both U.S. and U.K. startups have been removed from this dataset.

Startups with growth leaders experienced in these critical markets have significantly higher scaleup rates.

Scaleup rates increase for startups that have growth leaders increase by phase level. Startups in Attraction-phase ecosystems with growth leaders have a scaleup rate of 11.1%, compared to 7.5% for those without.

As discussed above, targeting global markets first is a challenging strategy for startups in Activation-phase ecosystems, leading to lower scaleup rates. Consequently, having a growth leader with experience in the U.S. or U.K. market is not as beneficial.

It can also be noted that startup founders who want to scale and go global are more likely to move to Attraction and Integration ecosystems precisely because of the presence of so many globally experienced stakeholders. Note that Integration-phase ecosystems are not represented here because of the removal of the U.S. and U.K. startups resulting in a null Integration value.

Consultants and Employees in Foreign Markets

Similar to the metric above, this measures if a startup has employees or consultants who are experienced in the U.S. or U.K. market. Hiring growth employees based in these markets from an early stage of a startup clearly leads to a much higher (more than 2x) success at scaling to a $50 million+ valuation. Again, U.S. and U.K. startups have been removed.

Local vs. Remote

This variable is the ratio of a startup’s workforce that is based locally vs. remotely. These questions were asked pre-COVID, but it should be noted that in the world of competitive startups, sourcing remote talent was already fairly common pre-COVID. The fact that we can see these startups’ subsequent valuations during and after COVID-19 mean that the insights about the “ideal mix” hold throughout this time.

We infer from practice and experience that founders giving themselves the flexibility to hire talent outside of their city leads to finding better talent on average but also allows the startup to access similar quality talent at lower cost than in the startup’s headquarters city. Diversity of location also brings diversity of experience and insights on other markets.

However, the dropoff at 100% indicates that relying solely or almost solely on remote talent may not be the most effective scaleup strategy. This makes sense: when founders are based in one city while all of their employees are based in another city, this makes the communication of complex customer and product issues and management very difficult. Also, it reduces the ability to build team spirit, which inevitably leads to issues with retention.

These choices can have a dramatic impact on the local economy. Previous Startup Genome research has demonstrated that the most productive startups generate numerous local jobs and generate many multiples more revenue than the average startup.

Senior Advisors with Equity

For startup founders, having access to talent does not only mean hiring employees and consultants in the normal team. It also means securing the regular advice of successful founders and senior executives by issuing to each stock options (1% at earlier stages and as little as 0.5% at Series A and 0.25% at Series B), typically vesting over a period of 24 to 36 months, although at later stages sometimes as little as 12 months. Having equity that vests over time commits the advisor to invest in learning and advising the startups regularly and for a sustained period, knowing they can help more at certain times. It also means that the stakeholders will provide tough love when needed — giving the founder a difficult message because they have a real interest in the startup’s success, rather than just valuing keeping a “good” relationship with the founder.

As originally measured by the first Startup Genome report, securing the advice of more successful founders and senior executives greatly increases a startup’s chance of successfully scaling, in fact doubling it when going from no advisors to one or two, and increasing again by more than 50% by securing three or four advisors.  

Unfortunately, securing the support of three or more advisers by offering them equity is infrequent among startups all over the world, with only 20% of them doing so. When broken down by ecosystem phase, we see it is slightly less frequently used in Activation- and Globalization-phase ecosystems. Our experience of assessing and advising many of these ecosystems suggests this is partially due to founders in these ecosystems having less knowledge of startup Success Factors through lower startup experience, scaling experience, and lower Global Connectedness in their local ecosystem. Therefore, fewer founders know that securing the support of senior advisors by giving them equity increases success. However, it may also be due to the lower availability of successful founders and senior executives to give options in earlier-phase ecosystems.

Employee Stock Options (ESOP)

As also measured in the initial Startup Genome report, founders that give employee stock options (ESOP) to all of their employees — not only senior but mid-level and low-level employees — dramatically increase their chance of scaling. Offering stock options increases the motivation of employees, increases retention, and builds team spirit and commitment.

Our in-depth research of more than 100 startup ecosystems, access to senior developer and growth hacking talent goes dramatically down in countries where stock options are taxed at vesting by political leaders, rather than allowing employees to elect to be taxed on the option value at issuance, and later be taxed at the liquidity event, as in the U.S. This prevents startups from the ability to issue stock options to employees because employees cannot afford the tax liability one, two and three years later as the startup’s valuation increases. Such policies deprive startups from a key motivation and retention tool.

Worse, these tax policies limit the growth and success of the whole ecosystem by having senior engineers and growth hackers leave for high-paying jobs in banks and consulting firms because startups cannot pay the same salary nor cannot compensate for a lower salary by providing an equity upside.

A common misconception is that stock options are a tax reduction mechanism, but in practice they are tax neutral. This has been demonstrated all over the world and is easy to explain: before the country allows the election, stock options are never issued to employees, which means the startup founders and investors own all the stock and taxes are levied only when the startup exits (in other words, the employee does not receive taxable income from the stock options during the growth of the startup).

When a country allows such a tax election (for the option to be taxed at issuance when it has zero value = zero tax), options are issued without being taxed and taxes are collected on the capital gain realized when the startup exits.

This is to say that whether stock options are taxed at issuance or vesting, the same taxable revenues are produced. However, because taxing stock options at vesting in practice stops startups from issuing such options and therefore reduces retention of experienced talent, it reduces the success rate of startups and, therefore in reality significantly reduces overall tax revenues.

Providing stock options to all employees is less common in early-phase ecosystems. Our experience assessing and advising ecosystems suggests that lower rates of securing the support of senior advisors in early-stage ecosystems is due to founders in these ecosystems having less knowledge of startup Success Factors through the overall lower startup experience, scaling experience, and lower Global Connectedness in the ecosystem. Therefore, fewer founders know that securing offering ESOP to all employees dramatically increases the scaleup rate.

Founder DNA

The following section discusses aspects of founders’ experience and mindset, correlated to those traits’ scaleup success.

Serial Entrepreneurship

The Serial Entrepreneurship variable looks at if, at the time they took the survey, the founder had previously founded one or more startups.

While previous research has shown that serial entrepreneurs are not more successful than first-time entrepreneurs, this longitudinal study shows clearly that serial entrepreneurs succeed in building scaleups at a more than 10% higher rate.

However, combined with results showing that serial entrepreneurs have greater Local Connectedness than first-time ones, and the Local Connectedness Index leads to a significantly higher success rate, we can state that the accumulation of network relationships explains at least part, if not all, of the higher success rate.

Surprisingly, this rise in success rate does not apply to B2B startups as it does for B2C and mixed startups (double-sided markets like marketplaces). It may suggest that some knowledge is less transferable from one B2B startup to the next than from one B2C to the next.

Hypergrowth

The Hypergrowth variable examines the impact of at least one founder in the founding team having previous experience in a hypergrowth startup. For this report, a hypergrowth startup is defined as a startup that scaled rapidly to a very large size.

Founders who have previous hypergrowth experience have an 85% higher scaleup rate compared to founders without this experience. This indicates that not just previous experience, but experience specifically related to a successful past startup is a critical factor in achieving scaleup success.

This is most evident for startups in Integration-phase ecosystems, as founders with past success can plug their invaluable experience into ecosystems with stronger networks, more knowledge and talent, and more funding — increasing their scaleup chances significantly. In earlier-phase ecosystems (and therefore ecosystems with historically less scaling success), founders with this type of experience are less prevalent and any hypergrowth experience is less likely to be at the executive level (pre-COVID, most executives were in a tech company’s HQ, with secondary offices of large tech companies based in small ecosystems rarely offering executive jobs that offer great insights as to how to later build a scaleup). This is why scaleups that emerge from smaller ecosystems with a founding team that stays there have such outsized impacts on local knowledge and resources.

Motivation

The Motivation metric measures founders’ motivations when establishing their current startup. Founders’ motivation to get rich is the strongest corollary to scaleup success among these motivation options.

Access to Financial Support

This variable measures the extent to which a founder had sufficient savings to support themselves in case the startup did not succeed.  

Founders with greater wealth are less likely to create a scaleup. The difference is statistically significant, and we can only infer what this means. Could we say that founders who are already financially stable may be less determined to succeed to change their economic situation? This hypothesis makes more sense when we see that those who want to get rich are more likely to scale. Relatively speaking, there may be less motivation to work hard and go through the ups and downs of a startup if a founder is relatively more well-off to start with. At the very least it means that starting from a strong economic situation is not a prerequisite to a founder’s startup success — in fact, it indicates the contrary.

Similarly, scaleup rates are lower for founders with access to personal savings or financial support from family or friends. This expands the general takeaway that wealth, whether in the form of personal savings or access to funds from close sources, is not as strongly correlated with success.

Self vs. Family vs. Friends

Keeping in mind the general takeaway that greater access to wealth does not correlate with scaleup success, it is notable that among these categories, founders who can rely on friends for funds were more likely to produce a scaleup than those with their own or family resources.

That is, having friends who could support you, rather than having personal savings or family assets, leads to a higher probability of success at building a scaleup. We will see later that knowing an entrepreneur helps in scaling success and we infer that knowing and having relationships with people in higher social-economic segments can definitely help too. The well-off friends may be a source of motivation and advice, role models, or provide funding or relationships to investors, customers, or partners.

Interestingly, founders with a family that can financially support their startup (rather than personal savings) have a higher rate of success in Asia, while this is not true in Europe and North America.

Founder Age

The Founder Age metric examines the startup founder’s age. Scaleup success is most common among founders in the 26–40 age bracket, in terms of scaleup rate and absolute number of scaleups. This trend generally holds across regions, except that in Asia and MEA (the Middle East and Africa without Israel), younger founders tend to be relatively more successful, which may be due to the lower average age of the community making it more difficult for older founders to develop Local Connectedness.

Number of Founders

The Number of Founders metric considers the total number of members in a startup’s founding team. Scaleup success tracks as the number of founders increases until four, then falls (in part because not many instances of startups with five or more founders).

This is surprising because previous Startup Genome research suggested that the proportion of startups with four founders was lower in Series A and later-stage startups than in seed ones, and even more so in pre-seed startups, suggesting that teams of two and three founders were most successful. This may have been due to the fact that the proportion of larger founder teams was rising, artificially causing these results.

Regardless, we now know that startups initiated by three or four founders are more successful. We note that while the charts suggest that having five or more founders also displays a higher success rate than having two founders, so few startups have such large founder teams that the difference is not strongly supported, statistically speaking.

Education Level

The Education Level metric is created by asking founder survey respondents whether they had a graduate degree or undergraduate degree at the time they founded their startup. It is somewhat surprising that a higher level of education does not have a discernible effect on founders beyond the undergraduate level.

However, a founder having an undergraduate degree is much more correlated with scaleup success — the scaleup rate for founders with an undergraduate degree is more than 30% than founders without one. This may be the result of a factor previous Startup Genome research identified regarding the ideal makeup of founder teams. Specifically, that mixed founder teams (founders from both business and technical backgrounds) scale better than teams with less diverse backgrounds. While both technical and business backgrounds typically have an undergraduate degree, it is more mixed when it comes to graduate degrees.

It is also possible that some technical founders were studying for a graduate degree while founding their startup.

When combining these results with our research on founder mindset, we understand that founders with graduate degrees may be slightly less successful because from the onset they display more attitudes, behaviors, and skills towards depth, reflection, and patience, and structure (e.g. spending a lot of time on product and delaying execution), rather than breadth and sense of initiation, which are traits more closely associated with entrepreneurs who have successfully built a scaleup. However, it is recognized that attitude and behaviors can change over time, particularly with experience and coaching.

Target Market

The Target Market metric examines whether a startup was primarily focused on a B2B, B2C, or a mixed business model (including both B2B and B2C). B2B-only startups have higher scaleup rates than those that are B2C-only or mixed. With the rise of Deep Tech startups, which are overwhelmingly B2B, and the distribution of technical skills and industry expertise across the world that support that rise, the higher rate of B2B success bodes well for the continued decentralization of success away from top ecosystems. Remember, that B2B startups that focus on foreign customers (more than 50% of foreign customers) at an early stage see their revenues grow 2.1x faster rate.  

Looking at the success rate by customer target segmented by region shows that only in Asia are B2C startups more successful at becoming scaleups than B2B ones.

What Are the Biggest Factors in Scaling Success?

From this longitudinal analysis, we can conclude that various factors within a founder’s control influence the ability of a startup to scale to $50 million and higher valuations. Founders looking to improve their chances of scaling should ensure that they offer stock options for all employees, have more than five global connections to top ecosystems, and have at least three advisors for their startup. Global Connectedness, having advisors with equity, and offering strong employee incentives in the form of stock options are crucial to scaling success.